L&G chief Tim Breedon attacks Treasury scheme

The boss of Legal & General has launched a scathing attack on
the Government for its ' misguided approach' to quantitative easing -
the tool being used to boost the nation's money supply.

Tim Breedon, chief executive of Britain's third-largest
insurer, said pumping new funds into the system to kick-start the
economy 'doesn't address the problems directly' and is 'not good for
pension funds'.

Breedon went on the warpath as he said the programme focused far too heavily on government debt, known as gilts.

'I am not a big fan,' he said of the scheme. 'The Government's
objectives would be better served by extending QE purchases to
corporate debt, which would help restore confidence to another asset
class.'

Scathing: Tim Breedon says pumping money into the system is 'not good for pensions funds'

He made his comments after cutting L&G's dividend for the first time in the firm's 173 year history to shore up the battered balance sheet.

The business slumped to a fullyear loss after being hammered by plunging value of shares and bonds. But Breedon reckons L&G can still withstand a further severe downturn in world stock markets.

The insurer is putting aside a hefty £1.2billion to provide a safety net in case firms start to welch on their debts, known as corporate bonds.

Breedon said: 'This represents a historically high rate of provisioning above levels needed to cover the worst default levels since the Great Depression'.

However, its cash surplus, the buffer used to protect L&G against a sharp fall in the value of its investments, has plummeted from £4.1billion to £1.8billion.

Much of this is due to the equity markets tanking, the heavy costs of an aborted share buyback programme and the default provision.

Analysts are also concerned about its £2.6billion exposure to sliced and diced debt known as asset-backed securities. But Breedon and his team say they are good quality investments.

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L&G posted a £1.1billion loss in 2008 compared with £718million profit for the previous year. The final payout drops to 2.05p a share from 4.1p - the dividend cut is expected to save £110million annually. The group plans to axe around 650 jobs, similar to last year.

L&G's full-year figures were aimed at restoring confidence in the business after fears swept the market about its solvency.

However the shares fell 3.1p or 7 per cent to 39.7p , dragging the rest of the sector with it.